Casper: What is it and How Will it Affect Ethereum?

If you’re not a stranger to the world of cryptocurrencies, then chances are you’ve heard of the incoming change to the Ethereum network (many times, probably). Vitalik Buterin, the visionary and founder of Ethereum has been talking about a shift in the network for over a year now as he, Vlad Zamfir, and a team of developers are working constantly to improve upon the current system. The future switch from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism is easily one of the most highly anticipated changes coming to Ethereum and as we’re getting closer, many crypto enthusiasts have questions about the change. We know most people involved in the cryptosphere are not blockchain developers, so we’ll keep this easy to read so you can understand what Casper is and how it will affect Ethereum.

What is ‘Casper’?

Firstly, Casper is the name given to the upcoming update(s) to the Ethereum network. There are actually two specific Casper projects that are coming together, but we’re focusing on Vitalik’s Casper, called Casper the Friendly Finality Gadget (FFG) since it’s the update that’s to be released first. This new update is a crucial step in getting the network over from a PoW consensus mechanism to ultimately being a PoS system. In the case of “Vitalik’s Casper,” we’re looking at a combination of both protocols to have a hybrid PoW/PoS consensus mechanism. While both PoW and PoS are methods used to maintain security and achieve consensus for a blockchain-based network, there are some important differences between the two consensus mechanisms.

The first rollout is intended to be a hybrid between PoW and PoS before Ethereum makes the switch completely over to PoS. The intention is that this will make things easier for the network as the rest of the changes occur over time. But why exactly does anyone want a PoS model anyway? After all, Bitcoin’s network has been running PoW since its inception and people are happy to continuously mine the cryptocurrency with the highest market capitalization. While that’s true, there are also some significant ways the Ethereum network can be improved and strengthened. Let’s take a quick look at the differences between the current system and how Casper plans to improve on it.

Proof-of-Work (PoW)

PoW is the original consensus algorithm used in a blockchain network dating back to the inception of Bitcoin and what the Ethereum network is currently using. The PoW model gained in popularity because of its ability to defend against denial of service (DoS) attacks and its ability to ensure that those with the largest wallets on the network were not the ones controlling the currency. Instead, the network is distributed among a variety of miners in the network who are essentially solving puzzles (“mining”) and adding blocks to the chain that are verified by everyone else in the network.

However, as the cryptocurrency space continues to evolve and expand, the community is on the lookout for potential concerns in the future. While PoW doesn’t allow those with large wallets to control the network, it has been shown to shift towards becoming more centralized over time based on who has access to the greatest computational power. If we look at the makeup of those mining in the Bitcoin network, we see that large mining pools are collectively controlling a larger percentage of total hashrate in the network.

Though the largest mining groups in the network are mining pools, meaning they’re made up of miners from all over the globe mining together and not a truly single entity, there is still the possibility of a 51% attack on the network as groups continue to get a larger slice of the pie. With Ethereum, we see a similar picture as well.

As mining becomes more difficult to stay competitive in, miners are continuously needing to purchase more hardware and scale the size of their operations in order to remain profitable. In return, we’re also left with another issue: energy consumption.

Mining cryptocurrencies with the PoW consensus mechanism requires a lot of computational power. If you’ve ever seen a Bitcoin or Ethereum mining farm before, this is likely to come as no surprise. Mining operations often include countless GPUs and/or Application-Specific Integrated Circuits (ASIC) miners running constantly in order for the operators to make a profit. Not only is the cost of the hardware not cheap, but the electricity to run the operation is impressively (or rather, concerningly) high as well.

Though that energy is well spent in the eyes of the Bitcoin and Ethereum networks, the fact of the matter is that mining consumes an exorbitant amount of energy; unsustainable amounts, some might say. But those miners are serving an important role in the network as well. Miners aren’t just getting paid for “mining” new coins, they’re ensuring the network is up to date and that all transactions are verified. Unfortunately, that power used for mining can’t be simultaneously utilized for anything else while mining. Because of the power consumption that is useless outside of the crypto context and the increasing concerns of centralization, Vitalik Buterin and Vlad Zamfir have been developing a solution for the Ethereum network known as Casper. Here’s why it matters.

How Casper Plans to Solve the Present Issues

Looking at the current concerns in the Ethereum network, Casper presents an opportunity to move Ethereum in a new direction by bringing the network to a Proof-of-Stake (PoS) model. At the beginning, there will be some time where the first hybrid Casper (sometimes called “Vitalik’s Casper”) will be using PoS atop of the PoW network in order to ease the transition. However, the ultimate goal is to bring the Ethereum network away from PoW altogether and implement a PoS system. Why? Because the switch intends to solve nearly all the issues above.

Proof-of-Stake (PoS) and Casper’s Effect on Ethereum

Unlike the current model for maintaining the validity and security of the Ethereum network, Casper is focusing on implementing a PoS system for the community. This shift is looking to solve concerns of centralization, energy consumption, and economic security.

At the beginning, those running mining operations won’t need to close up shop just yet. Ethereum is still slated to be running on PoW for a while after the first Casper update, but it’s something miners need to keep an eye on. The biggest change coming to Ethereum is how “mining” is going to work. With PoS, there are no longer going to be any “miners.”

Instead, validators will stake ETH and begin validating blocks by placing a bet on a block that they think can be added to the chain. After the block gets approved and added, those who placed bets on it will be rewarded in proportion to their bets. However, a validator that attempts to place multiple bets on different blocks and effectively have “nothing at stake” will be penalized and have their stake slashed. That’s one of Casper’s characteristics that sets it apart from other PoS models and why it’s more Byzantine Fault Tolerant as a consensus mechanism.

After everything is said and done the biggest changes coming to the Ethereum network after the full implementation of Casper (both parts 1 and 2) are intended to be:

No more Proof-of-Work (PoW), traditional miners are out

Increased decentralization of the Ethereum network

Less power consumption and energy waste

Increased security against a 51% attack

Easier to scale the network and continue to grow

Of course, the crypto community won’t really know what’s going to happen to the Ethereum network until the actual rollout. Often times there is a lot of planning, testing, and optimizing that goes on before a mainnet launch, but then things get a little more complicated once the project goes live in the real world. At the end of the day, all we know is what the intended outcomes are supposed to be, but we’ll have to wait for the actual Casper roll out to truly know. Overall though: certainly optimistic.